Market Update 2-22-2022

Crude is down 45 cents???RB is down 38 points?????ULSD is down 1.1 cents?(these are April futures values)

Overview

Energies are being hurt by the fear of rates staying "higher for longer". At 4.73%, two-year U.S. Treasury yields closed at their highest in 15 years on Tuesday. This has supported the U.S. dollar, which is not supportive for commodities.

We suspect some of the weakness in crude pricing is due to the clearer picture that Chinese demand, while rising given recent purchases of crude seen, is being fed increasingly by purchases of Russian crude." Russian exports of discounted crude and fuel oil to China have jumped to record levels. Asia’s largest economy has dominated buying of ESPO, a grade that can be shipped quickly from Russia’s Far East, since late-2022. China not only bought the entire monthly loading schedule of ESPO for January, it also purchased Arctic grades and Urals, as per the crude analyst at Kpler. "(Bloomberg)

Crude oil loadings at the CPC terminal on the Black Sea Coast have reportedly been halted since 19 February due to bad weather, and this suspension still appears to be in place.?The CPC terminal has a capacity in the region of 1.6 MMBPD. Yet, this stoppage seems to be a normal occurrence for this time of year. And Kazakhstan has not stopped its oil production due to this hiccup. (ING)

Morgan Stanley has raised its estimate for oil demand growth this year to 1.9 MMBPD from 1.4 MMBPD previously, but lowered its Brent price forecast for July-December. Their Brent forecast has been lowered to $90-100, down from prior estimate of $100-110. They see Russian supply higher than previously forecast. They lowered their Q4 and 2024 oil forecast to $95, down from $110 seen prior.

Today, the Russian Deputy Prime Minister said that the oil output cuts announced recently were only for March and that "further adjustments from April onwards will be made at a later date. " (Quantum)

Technicals

WTI is heading for a sixth straight session of losses on Wednesday. It's the longest streak of losses this year so far. (WSJ) "Overall, the oil market remains rangebound, in Brent between $80 and $89 and WTI between $73 and $82, as the market weighs the impact of rising demand in China and India versus a potential slowdown elsewhere," analysts at Saxo Bank wrote in a research note on Wednesday. (WSJ)

Momentums?for?the?energies?remain?negative.

WSJ spot futures ( now April) have resistance at 77.75-84. Support is seen at 2 of the 3 past lows at 74.95-75.06, then at 74.31-35. The 50 day moving average on the DC chart lies above at 77.53, right by the high for the expired March contract yesterday of 77.51.

April RB has support at the overnight low at 2.5939-72, then at 2.5533-70. Resistance lies at 2.6610-43.

ULSD for April sees support at 2.7162-78 and resistance at 2.8096-2.8117.

Natural?Gas?--March?is?up?3.5?cents,?while?April?is?up?7.5?cents.

NG spot futures tested below $2 as the supply demand picture has not been seen as supportive for the near term. But, Freeport having received federal approval for a partial restart is likely supporting outer months. The following quote was seen from a Bloomberg analyst. : “Hard to imagine how things get worse from here.”

On Tuesday, federal regulators approved the partial restart of Freeport LNG's export plant in Texas, including two liquefaction trains, two tanks, and one loop and dock each. Restart of the third unit and related facilities require additional permission, FERC said. It will be "several weeks" before the plant can reach full processing capacity of 2 BCF/d. A third storage tank and second tanker berth will not be available until May, Freeport LNG said in a statement. (Reuters)?Freeport also said : "Today’s authorization provides for the immediate full return to service of one liquefaction train, that has already restarted, and the incremental restart and full return to service of a second train."

Across the contiguous 48 states, January was the sixth-warmest on record. The six New England states, as well as New Jersey, were warmer than ever recorded, according to the US National Centers for Environmental Information. New York, Pennsylvania and Indiana had their second-warmest January in data going back to 1895. (Bloomberg)

Tomorrow's EIA storage data is not seen as supportive as the draw will be very much smaller than last year and the 5 year average. Reuters has a forecast for tomorrow's number of -71 BCF. This compares to last year's -138 BCF number and the 5 year average draw of 177 BCF. Although a colleague of ours doubts a number as high as -71 BCF this week, saying today " I would be shocked if it was north of 60 BCF."

Euroilstock data says that European consumption of natural gas fell by 19.3% from August 2022 thru January 2023 versus the 5 year average seasonally for the period. The EU had set a target of a 15% reduction in consumption for the August 2022 thru March 2023 period, relative to the 5 year average.?(EC.Europe.EU)

The March LN/NG options expire tomorrow with open interest greatest in the $2.00 put (13,886 contracts) in nearby strikes. But, there is a fair amount also outstanding in the $2.25 puts (10,140 contracts). There is a little less in the $1.75 puts (6,724 contracts) and $1.50 puts (8,373 contracts).

Over the past 36 hours, we heard technical analysts looking for a target of 1.98 and even 1.852 for spot futures as they watch NG slip slide lower without any suggestion as yet that prices have bottomed. The 1.98 target has been achieved. Momentum remains negative. But there are mean reversion set ups on the DC, March and April daily charts, which cautions a bearish sentiment somewhat.?For today we see support for the April futures at the past 2 lows at 2.162 and 2.113. Resistance lies at the 2.416 area.

We note that the April October 2023 spread has not made a lower low versus that seen at the beginning of the month even as the spot futures have eroded. On Feb 7 we said : A popular spread that looks to have bottomed is the April October spread. The spread has lows from the prior 4 sessions in the 66-68.5 cent area. Current value is near 56 cents. We see resistance above beginning at 48 cents. The spread did not get to 48 cents since then. It topped out at 53.5 cents. Today's value is about 62 cents. We see this spread being greatly influenced in the coming weeks not just by cash valuation, but as much by storage operators possibly locking in storage costs to hold supply through the injection season.

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